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A sure measure of how much and how fast the U.S. power system is changing is that the number of policy actions addressing grid modernization jumped 75% from Q1 2017 to Q1 2018. This also reveals something more important about grid modernization.

Grid modernization is everything from advance metering infrastructure (AMI) to rate design that would make the system "more resilient, responsive, and interactive," according to the Q1 2018 50 States of Grid Modernization. More broadly, it is the set of changes to the electric distribution system that will make the utility of the future possible.

Energy storage played a major role in the significant increase of grid modernization policy activity. There were policy actions on deployment of storage, setting targets to grow storage, ordering studies on the challenges and opportunities of storage, providing rebates for it and setting rules for its interconnection.

In addition, many policy actions not specifically addressing storage had implications for storage. New rate designs were intended to take advantage of storage and new planning procedures were established so that storage could be included.

More reliable, cost-effective and clean

The Q1 increase in legislative and regulatory actions to direct grid modernization catalogued by the North Carolina Clean Energy Technology Center's (NCCETC) quarterly report is "astonishing," according to NCCETC Policy Research Manager Autumn Proudlove. Work by policymakers on grid modernization is increasing at an "astounding" rate, she told Utility Dive.

It is happening because grid modernization is "an umbrella under which stakeholders and utilities are working to make the future electric system more reliable, more cost-effective, and cleaner," Proudlove said.

It is also an indication of the growing need for policies that address the rising penetrations of distributed energy resources (DER) on many states' grids, she added.

"The states that are active seem to become more active and keep expanding the breadth of their efforts and adding new topics and proposing new grid modernization policies. The more they dig into it, the more they find issues that need to be addressed."

Under this umbrella, lawmakers and regulators are addressing smart grid and AMI rules and deployments. They are working to reform the regulations and rates that will determine the new utility business model. And they are developing rules through which utilities and third-party providers can expand the availability of microgrids, demand response and energy storage.

The crucial, though not immediately apparent, thing about Q1's grid modernization activity is that the number of states in which it is happening did not grow. In Q1 2017, there were 148 policy actions in the District of Columbia and 37 states. In Q1 2018, there were 259 actions in DC and 37 states.

This reveals a less noticed phenomenon about grid modernization efforts. "The states that are active seem to become more active and keep expanding the breadth of their efforts and adding new topics and proposing new grid modernization policies," Proudlove said. "The more they dig into it, the more they find issues that need to be addressed."

The states that lacked policy actions on grid modernization tend to be states where the rise of DER and smart technologies is not as significant.

A closer look at the numbers

The biggest single category of actions was the 22 on rules related to AMI, grid modernization’s foundational technology. There were also 12 actions addressing AMI deployment.

But the real Q1 attention was on energy storage. While the second biggest single category of actions were the 21 on energy storage deployment, there were also 13 actions on energy storage studies, 15 on energy storage targets and 8 on energy storage rebates, NCCETC reported.

The 17 actions on grid modernization investigations, the 17 on utility business model reforms and the 15 on distribution system and grid modernization planning actions completed NCCETC’s top five list.

There is an overlap in this policy activity that is forcing policymakers to understand the grid "more holistically and more as a system rather than as individual pieces," Proudlove said. Addressing AMI introduces questions about access to AMI data by providers of distributed energy resources (DER), which introduces questions about all DER, including battery storage, she said.

Business model reforms in Q1 meant decoupling of rates and efficiency measures in New Mexico, performance-based rate making in Hawaii, and a potential move to deregulation in Nevada, she added.

Even where there is segmentation, there is also overlap, she said. "Energy storage providers are largely focused on policies about storage, but that leads to DER policies."

New York, with 29 actions, and California, with 23 actions, were the most active states. Massachusetts, with 19 actions, Hawaii, with 16, and New Jersey, with 15, completed NCCETC’s top five states.

Studies, debates, policies

The studies often begin by defining the term because "a common definition of grid modernization does not exist,” NCCETC reports.

A March 22 ruling from the California Public Utilities Commission (CPUC, docket 14-08-013) provided one of the first commission-sanctioned definitions. It is intended to be used in deciding whether a utility-proposed capital expenditure can be justified as a grid modernization investment.

"A modern grid allows for the integration of distributed energy resources (DERs) while maintaining and improving safety and reliability," the CPUC wrote. "A modern grid facilitates the efficient integration of DERs into all stages of distribution system planning and operations to fully utilize the capabilities that the resources offer, without undue cost or delay, allowing markets and customers to more fully realize the value of the resources, to the extent cost-effective to ratepayers, while ensuring equitable access to the benefits of DERs."

"A modern grid achieves safety and reliability of the grid through technology innovation to the extent that is cost-effective to ratepayers relative to other legacy investments of a less modern character," the CPUC concluded.

The Virginia legislature also took a major step toward a definition in Q1. A key provision in an omnibus energy bill (SB 966) defined "electric distribution grid transformation projects" as being in the public interest.

Such "projects" include AMI, distribution system modernization, energy storage, microgrids, cybersecurity measures and system hardening, the legislature decided. But they do not include undergrounding and system maintenance.

"Declaring those things to be in the public interest gives the utility a leg up in obtaining rate recovery for them in rate cases," Proudlove said.

The absence of a definition of grid modernization led to controversy over Duke Energy’s "Power/Forward Carolinas” grid modernization proposal, she added.

Parties in the Power/Forward proceeding, including the North Carolina Sustainable Energy Association (NCSEA), argued that many of the proposed expenditures are not grid modernization. "The bulk of their very expensive proposal is dedicated to maintenance costs like trimming trees and burying power lines, and not investing in new technologies," NCSEA spokesperson Allison Eckley emailed.

Duke Energy wants to build "a system that is more secure against physical and cyber threats and that anticipates outages and intelligently reroutes power when an outage occurs," spokesperson Jeff Brooks emailed Utility Dive. The company's proposal is built on data and advanced analytics, he wrote.

In its proposal, Duke also asked the North Carolina commission for rate recovery on "investments to prepare the grid for the expansion of solar energy and other renewable and emerging technologies," Brooks added.

The debate demonstrated the consequences of not having a clear definition of grid modernization, Proudlove said.

The debate was resolved with a June 1 settlement filing by Duke and other proceeding stakeholders. The agreement calls for Duke's expenditures to be cut during a three-year pilot program from a proposed $7.8 billion to $2.5 billion. Investments in grid modernization, battery storage, data access and vehicle electrification remain. The more controversial elements of Duke's initial proposal were eliminated.

The settlement does not, however, "limit the scope or scale of future investments we could make under the Power/Forward Carolinas plan in North Carolina," Duke emailed Utility Dive.

Performance is "filtering in"

Proudlove said investigations into performance-based ratemaking (PBR) and business model reforms are both efforts to capture the many dimensions of grid modernization. "PBR is filtering in," she said, citing Massachusetts regulators’ approval of it in Eversource Energy’s Q1 rate case, studies of PBR in Michigan and Minnesota, and the implementation of earnings adjustment mechanisms in New York.

But the major move toward PBR in Q1 was in Hawaii, NCCETC reports. Senate Bill 2939 ordered Hawaii regulators to create a new business model by 2020 for the Hawaiian Electric Company (HECO), the state’s dominant electricity provider, that is built around performance-based ratemaking.

The utility has "advocated for this performance-based approach for 20 years" and "welcomes being judged on performance," HECO Director of Corporate Communications Shannon Tangonan said.

To capture the meaning of grid modernization, the standard for utility expenditures must shift. It must move from "Are we paying the correct amount for what we get?" to "How do we get what we want?"

Isaac Moriwake

Attorney, Earthjustice

But it is important to recognize that the law "does not replace the current cost-of-service regulatory model with a purely performance-based model," Tangonan emailed Utility Dive. In this way, the commission can ensure that 'unintended consequences' are avoided, she added.

Earthjustice attorney Isaac Moriwake represents Hawaii’s Blue Planet Foundation in the commission's PBR proceeding, which was opened April 18 (docket 2018-0088). The "utility of the future" will be regulated through "performance outputs, instead of investment inputs," he emailed Utility Dive.

To capture the meaning of grid modernization, the standard for utility expenditures must shift, Moriwake said. It must move from "Are we paying the correct amount for what we get?" to "How do we get what we want?"

In the new proceeding, "the commission must empower and motivate the parties to commit serious resources to exploring and negotiating major changes in the regulatory model," Moriwake’s Blue Planet filing says.

A New Hampshire grid modernization effort demonstrates the challenge facing Hawaii. Despite a March 2017 consensus report to state regulators from utilities, consumers, renewables and environmental advocates to move ahead with grid modernization, the commission has not yet even opened a docket.

The report called for a proceeding on rate reform, data access, distribution system planning and other modernization actions, Conservation Law Foundation attorney Melissa Birchard emailed Utility Dive. Instead, regulators have approved two pilots, on non-wires alternatives and time-of-use rates, and are working toward a limited test of real-time rates, a DER study and an energy storage trial.

Storage becomes central

As demonstrated by the many Q1 actions on energy storage deployment, targets, studies, rebates and interconnection, it has become central to the grid modernization conversation, Proudlove said. “And many actions that don’t name storage include storage, like those on distribution system planning and time varying rates, she added.

“Of the 37 states taking grid modernization actions during Q1 2018, 32 took energy storage-related actions, NCCETC reports. The “majority” of actions by lawmakers on grid modernization included it.

Energy storage as resilience was named one of NCCETC's top five Q1 grid modernization policy stories. In response to hurricanes and wildfires across the country, pending laws in California (SB 1088), Florida (SB 1586) and Hawaii (SB 2910) include requirements for resilience planning. The proposals in Florida and Hawaii also include incentives for resilience efforts, NCCETC reported.

“Regulated utilities that don’t come up with modern solutions, like these, risk becoming outdated. The old model of utilities sinking millions of customer dollars into big, ugly infrastructure projects and then drumming up more customer demand to pay for them doesn’t work.”

Melissa Birchard

Attorney, Conservation Law Foundation

Smart grid technologies are a fundamental of resilience modernization planning, but it typically also includes DER with storage and microgrid systems with storage, Proudlove said.

Another of the quarter’s top grid modernization stories, according to NCCETC, was the Arizona Corporation Commission's proposal to adopt energy storage targets and add a Clean Peak Standard to its renewables mandate, NCCETC reports.

The Energy Modernization Plan, filed by Commissioner Andy Tobin on January 10, would require the state to have 3,000 MW of energy storage by 2030 and reach 80% clean energy by 2050. The plan’s "Clean Peak Target" (docket E-00000Q- l6-0289) adds a requirement for the state’s regulated utilities to increase the "clean resources" they deploy during peak demand hours by 1.5% per year through 2030.

Commissioner Tobin said the Clean Peak Standard can be met with any "clean" resource but solar-plus-storage "is particularly attractive" because solar overgeneration comes just before system demand peaks.

"Energy storage technologies can take that excess solar generation and provide it during those hours of peak demand," Tobin emailed Utility Dive. "Essentially, an incremental clean peak standard is an indirect energy storage standard."

The Clean Peak Standard concept has "caught on very quickly, especially in states where higher penetrations of solar have shifted peak demand to later in the day," Proudlove said. California’s legislature passed a Clean Peak Standard concept into law late in 2017 and Massachusetts has a proposal pending (H. 4318).

Because of the rapidly falling costs of storage, the Clean Peak Standard makes it practical to deploy more renewables, address solar overgeneration and reduce emissions from natural gas peaker turbines, Proudlove added.

So far, as Proudlove said, grid modernization proposals are coming through legislation and regulatory rulings. It will be interesting to see, in future NCCETC updates, how many proposals are initiated by utilities, like Duke's, or supported by utilities, like New Hampshire’s, or endorsed by utilities, like Hawaii’s. More and more utilities are realizing the truth in what Conservation Law Foundation's Birchard observed.

“Regulated utilities that don’t come up with modern solutions, like these, risk becoming outdated,” she said. “The old model of utilities sinking millions of customer dollars into big, ugly infrastructure projects and then drumming up more customer demand to pay for them doesn’t work.”